No one has any money
By Joe Nocera is broke. Well, not broke exactly — he’s got a very nice job that pays the bills, but he’s broke in the sense that if he lost his job he wouldn’t have any money, even though he’s nearing what will soon come to be thought of as the anachronistic concept of “retirement age.” Why does Nocera, a very successful journalist and author, not have any money?
Like millions of other aging baby boomers, I first began putting money into a tax-deferred retirement account a few years after they were legislated into existence in the late 1970s. The great bull market, which began in 1982, was just gearing up. As a young journalist, I couldn’t afford to invest a lot of money, but my account grew as the market rose, and the bull market gave me an inflated sense of my investing skills.
I became such an enthusiast of the new investing culture that I wrote my first book, in the mid-1990s, about what I called “the democratization of money.” It was only right, I argued, that the little guy have the same access to the markets as the wealthy. In the book, I didn’t make much of the decline of pensions. After all, we were in the middle of the tech bubble by then. What fun!
The bull market ended with the bursting of that bubble in 2000. My tech-laden portfolio was cut in half. A half-dozen years later, I got divorced, cutting my 401(k) in half again. A few years after that, I bought a house that needed some costly renovations. Since my retirement account was now hopelessly inadequate for actual retirement, I reasoned that I might as well get some use out of the money while I could. So I threw another chunk of my 401(k) at the renovation. That’s where I stand today.
Nocera’s story is unusual only in that, as he points out, he has a job he loves that requires no heavy lifting and that he can keep doing until he drops. The vast majority of his generational cohort isn’t so lucky:
Only 22 percent of workers 55 or older have more than $250,000 put away for retirement. Stunningly, 60 percent of workers in that same age bracket have less than $100,000 in a retirement account. . . the average savings for someone near retirement in America right now is $100,000. Even buttressed by Social Security, that’s not going to last very long.
How did we get into this mess? Part of the explanation is that traditional defined benefit pension plans have been replaced by defined contribution plans, which depend on using tax incentives to get workers to save for retirement, with, in theory, matching contributions from their employers. The problem is that people, or at least people in contemporary America, find it difficult to save lots of money for the day they can no longer work. Why? One reason is that stuff happens: people lose jobs, suffer health crises that require pouring their savings into The Best Health Care System in the World, and get divorced.
Another reason is that, due to “the predictable effects of widely shared cognitive limitations” (this is the polite academic way of pointing out that human beings are basically idiots) we’re not very good at saving and investing in general:
When I related my tale recently to Teresa Ghilarducci, a behavioral economist at The New School who studies retirement and investor behavior, she let out the kind of sigh that made it clear that she had heard it all before . . . most human beings lack the skill and emotional wherewithal to be good investors. Linking investing and retirement has turned out to be a recipe for disaster.
“People tend to be overconfident about their own abilities,” said Ghilarducci. “They tend to focus on the short term rather than thinking about long-term consequences. And they tend to think that whatever the current trend is will always be the trend. That is why people buy high and sell low.” Financial advisers — at least the good ones — are forever telling their clients to be disciplined, to create a diversified portfolio and to avoid trying to time the market. Sound as that advice is, it’s just not how most humans behave.
Now a key to understanding contemporary American politics is that it’s structured around either a continual denial of these unpleasant truths, or a perverse celebration of them. The Randroids and Hedge Fund Calvinists who run the contemporary Republican party (official slogan: Socialism Makes the Baby Jesus Cry) believe that if you’re broke it’s your own goddamned fault, while the neoliberal believers in capitalism with a human face who infest the Democratic establishment live in an intellectual fantasy theme park called FriedmanLand, where with just a little more “education” Americans will all become optimally thrifty software engineers.
What unites our rulers all across this vast ideological spectrum is their unshakeable belief that people should not be as they are.